March 2011 - Chinese immigrants are increasingly turning to franchising as a way of getting into business in New Zealand. Simon Lord hears expert opinions on the reasons, the benefits and the issues

Ginny Zhao and Tao Ma are award-winning franchisees with Robert Harris Coffee Roasters. Leo Zaito and Jet Zeng bought a hugely successful vending franchise. Paul Chan has his own Gloria Jean’s café, while a few years ago Jenny Chen made history as the first Chinese national to win a major title at the Westpac New Zealand Franchise Awards with her commercial cleaning business. All have featured in the pages of this magazine, but they have something else in common, too – all were new immigrants from China.

With Chinese immigrants now forming a significant proportion of franchise buyers in this country – in some industries, at least ­– we decided to take a closer look at the opportunities and issues that franchisees and franchisors face with the help of Andy Chang, a commercial manager at Westpac who works closely with the bank’s specialist franchise team, and other experts.

Andy has lived in New Zealand on and off for almost 20 years. ‘My parents were part of the first wave of Chinese immigration in modern times, coming here from Hong Kong in 1989,’ he says. ‘I went to school here then returned to Hong Kong for university. I worked for some major companies there, then returned to New Zealand eleven years ago. My parents are retired and live in Rotorua and I wanted to be here for them – that’s a very traditional thing. I’ve worked for Westpac for over seven years now and during that time there has been a new wave of immigration from mainland China.’

What is driving this new wave? ‘I think for many years the doors were shut and it was hard for Chinese people to get out and see the world and experience things,’ Andy explains. ‘Now the country has opened up and it’s been the trigger for people to look at making changes in their lives. I think there’s some anxiety that the door may close again, so they are taking this opportunity to leave. They are prepared to work their guts out, accumulate some assets and create a brighter future for their children.’

Those are exactly the attitudes that many franchisors are looking for. ‘Yes, and there are several reasons why franchising is a popular option for many Chinese. First, there’s the employment issue: If you are middle-aged, perhaps don’t speak English very well and don’t know the culture here, employment may not be that easy to find. Then if you have some assets, it’s always good to look at a business venture that will give you freedom to make your own decisions. In our culture, we think there is no future in being stuck in a job forever – in fact, the Chinese character for “job” is like a character trapped between walls. A lot of younger Asian people, even those who have been to university here in New Zealand, have been told about that and start thinking about going self-employed after working for maybe only a year, but that’s too soon – they don’t have the foundation for business success at that age, they’re not experienced enough. So both Chinese immigrants themselves and their children can find franchising very attractive.

‘That doesn’t mean it’s always a better option. A franchise is a good foundation for a business: you go in and everything is set up for you and there are systems to follow, it’s all taken care of. That is comforting for many people – it reduces their anxiety about losing everything they have worked for. On the other hand, you don’t have total freedom, you have to drive your business in line with the systems and the policies the franchisor sets down for you. That requires a good level of understanding and the right mindset. You mustn’t cut corners, and that approach needs to start right from the very beginning, before you even buy the franchise.’

Andy says that ‘For migrants from many countries, it’s not easy when they come to New Zealand – the language, the culture, the lifestyle, they’re all quite different. That’s why many tend to stick with their own communities. But that can lead to dangers. They may operate on hearsay rather than researching business opportunities for themselves, or they may resist taking advice from experienced professionals like lawyers and accountants because of the cost. They may have needed to take a few shortcuts to get around issues back home but NZ is a country with all sorts of rules and regulations and a good, solid legal system. So they need to change their mindset and do things the proper way.’

You hear stories suggesting that perhaps 50 per cent of Chinese-owned businesses have never made a profit, that they exist purely to satisfy immigration visa requirements and change hands for unrealistic prices.

‘If someone comes to the bank for finance and we’re not satisfied that the financial performance of the business will sustain the debt servicing, then we will say “No”. Equally, if they’re trying to buy a business where the financial results are less than ideal, I always highlight the risk of making a loss on re-sale – if the business doesn’t justify the price, how likely is it they can pass that same price on to the next party when time comes to sell? All they are doing is risk the assets they have worked hard to build up. But not everyone needs finance, and not everyone takes advice, although that has improved in recent years. A lot of the Asian customers I come across these days are more organised, they know they need to seek advice and do due diligence.’

It was partly the failure to take proper advice that led to the biggest scandal to hit New Zealand franchising in recent years, when up to 200 mainly Chinese immigrants were defrauded of over $3.5 million by a former Green Acres ironing master franchisee. ‘That was an extreme case,’ comments Andy. ‘It was targetted at people with limited resources looking to buy a job that would give them an income. Such people are more likely to be influenced by hearsay, by others telling them how good it can be, and rushing in. But I’m not sure even that case has delivered a strong enough message about doing things through the proper channels to reduce risk. It needn’t be that way: many banks, franchise lawyers and accountants with franchise experience now have Chinese speakers in their teams and it is possible for newcomers to get good advice in their own language. No matter whether you’re buying a big business or a small one, just don’t make decisions on hearsay alone.’

One aspect where Andy feels that hearsay and anxiety often collide is in the issue of branding. ‘I think Chinese people place a lot of emphasis on brands, which is obviously good news for franchises. That’s partly driven by anxiety too; if they hear Starbucks is a good brand and see celebrities drinking there, then they will drink Starbucks too – they haven’t had time to develop an understanding of what makes a good cup of coffee and develop their own taste, but they know it’s good to be seen with a famous brand. That is good news for established franchises, of course, but it can also lead to wrong expectations. I had a client recently who was determined to buy a particular business. From my point of view, the figures didn’t make sense because the financial performance, the location and the lease didn’t meet the benchmark. He was determined to buy it because it was a franchise and the brand was good – but the brand doesn’t do all the work.

‘When you buy a franchise, you start with all the right systems and you don’t need to worry about operations, skills, quality control and so on because there are procedures in place to manage all these things and you have people there to hold your hand as you get started and to help you get used to running your business properly. But beyond that, you need to participate, be involved, be passionate about what you are doing and if you want to build your business you have to be able to provide good customer service and get out and do the marketing yourself. Don’t expect the brand to do it all for you. Find out what are the things that can push your business to the next level and what are the barriers.’

Rod de Lisle, business development manager for Robert Harris Coffee Roasters, notes that Chinese buyers are often more willing to pay the higher rents and work the longer hours that are required to open a store in a popular mall. ‘There’s some truth in the expectation that the mall will bring in the people and the brand will turn them into customers, but it’s not the whole story. A business won’t work unless you are fully engaged in it and passionate about what you do. Take Ginny Zhao, for example – she may have been a novice when she started but now she’s one of the best baristas in the Robert Harris franchise because she is passionate about learning to do things better all the time.’

One of the biggest barriers that Chinese immigrants face initially is the language barrier. Immigration consultant Bill Milnes notes that the strong tradition of family can mean that they stay within the family group and that older members never really have to learn much English. Franchisors, however, say that English language skills are vital in building a business. ‘In the café business, you have to be able to chat with customers in a relaxed fashion, banter with them a bit and build up relationships with your regulars,’ says Rod de Lisle. ‘But we are finding more and more Chinese are arriving with good English skills now as they have learned it at school. And New Zealand society is certainly a lot more cosmopolitan than it was, say, 20 years ago.’

Commercial cleaning franchise Cleantastic has over a hundred Chinese franchisees. It’s an industry that many immigrants are drawn to because it requires relatively low investment, can often be operated part-time and the franchisor handles many of the administrative functions, including contract negotiation. That doesn’t mean that franchisees don’t have to talk to their clients though, Kevin Richardson of Cleantastic points out. ‘We encourage all our franchisees to talk to their clients and communicate regularly,’ he says. ‘Kiwis aren’t good at complaining and if something isn’t done to their satisfaction they won’t say anything for ages, so franchisees have to build the language skills and the confidence to ask “How am I doing?” every now and then – not assume that everything is going well. In commercial cleaning you can go quite a long time without seeing your clients so we help franchisees diarise appointments to ensure they have regular contact with their customers. We also have Chinese language speakers in our Auckland office and throughout the country there are franchisees who will interpret if necessary. That works quite well – those franchisees become a bit of a sounding board for Cleantastic’s Chinese franchise community, so everyone feels more involved.’

Getting involved is one of the biggest challenges for franchisors and new franchisees alike. Good franchise systems get better because of the constant involvement of their franchisees and the sharing of experiences and ideas via conferences, newsletters and face-to-face contact between people. Franchisees are not in competition with each other, but franchisors report that getting Chinese franchisees to contribute is a challenge. ‘We encourage all our franchisees to come along to meetings but it can often be hard to get Chinese franchisees to contribute,’ says Rod de Lisle. ‘They won’t come forward and talk about their accomplishments easily; they don’t want to seem boastful. Yet when you probe then they often have very good suggestions. It’s probably fair to say that they have a strong focus on the bottom line, so a lot of ideas about ways to make efficiencies and save money can come through.’

Rod suggests that part of the reluctance to share ideas, apart from any language issues, comes from the fact that immigrants buy into a franchise precisely because it has operating systems and procedures that have been worked out over a long period of time, ‘so why would you change it? In fact, Chinese franchisees usually follow the systems very well (an opinion shared by Kevin Richardson) and if something is not quite right then they want to know about it – they appreciate very direct feedback with facts and directions. But the more they get involved with the franchise community, the better their businesses will perform.’

Andy Chang suggests that although some immigrants will stay with the same franchise for considerable periods, others think of a franchise as a stepping stone to help them get established and learn about doing business in New Zealand. ‘After a few years, they know how to run a business here then they start asking themselves whether the franchise system has so much value for them any more and do they need to pay the franchise fees. One customer of mine is a family group with five cafés; two of the cafés are franchised and the others aren’t, but they stick with the franchises because the brands work for them, they feel they get good support for their fees, and they say it’s easier to work with bankers in terms of funding because the banks have some faith in the franchises. That’s smart thinking – they’re not putting all their eggs in one basket and one day they plan to establish their own franchise brand based on what they have learned.

‘There are already some Asian-developed franchise systems operating in New Zealand such as Noodle Canteen, which has 50 or 60 franchises and Fruit World, which has 27. The founders have been in this country for a long time so they are Chinese Kiwis – Chiwis. They know how to do business here and they know just how powerful a franchise model can be.’

Andy Chang believes that the more New Zealand franchisors and Chinese business buyers understand each other, the better the businesses that will result.

‘For franchisors, Chinese immigrants represent a pool of talented, hard-working people, often with considerable assets. They want to be good citizens, they want a more controllable lifestyle and they want to build a better future for the next generation. The challenge for them is that they have been living in China where a lot of practices are different, and it’s not easy for them to change overnight. Franchises create a framework that reduce their anxiety and increase their comfort level.

‘Franchisors who make it easy for immigrants to fit into their systems, who employ Chinese-speaking staff to help reduce communication problems, who encourage them to contribute and communicate and make it easy for them to feel part of the wider franchise, will reap the benefits.’

This article was first published in Franchise New Zealand magazine, Volume 20 Issue 1